shappell

Through this week’s elections, the Greek populous and opposition politicians sent their anti-austerity message and thumbed their noses at those holding the purse strings behind the European Union and International Monetary Fund’s bailout of the debt-addled nation. Other members of the EU, mostly northern, aren’t taking it lightly—and the response could lead to even greater uncertainty.

Railing against the austerity demands allowed by incumbents, neither of the two major parties—New Democracy and Pasok in Greece—were able to come close to winning a minority. This situation will cause heightened uncertainty (disruptions) in the nation and beyond over the coming weeks. The politicians who made the gains railed against any ideas for alliances and have publicly voiced rhetoric about desiring more favorable bailout conditions.

Those footing the bill, notably the Germans, aren’t amused and have answered with thinly veiled threats about delaying the planned bailout payment to Greece scheduled for today (Thursday). Worst-case scenario has Greece falling out of the Euro by some time this summer, NACM Economist, Christ Kuehl noted.

But what is the big impact on the credit industry? Perhaps the answer, for the short-term, is to do nothing except keep an eye on things very closely in the coming days and weeks ahead. Remember the basics: know your customer.

Ben Deboeck, country and sector risk coordinator for Ducroire Delcredere (keynote speaker at FCIB’s International Credit & Risk Management Summit in Hamburg from May 13-15), noted that Greek unrest rarely comes as a surprise anymore. Deboeck pointed out that bond markets barely moved.

“Nothing too surprising happened yet,” the Belgian-based Deboeck told eNews. “So, immediate consequences of the Greek elections, as well as French elections, are rather limited I'd say. More important than Greece/France is probably what is happening in Spain, with the government finally moving towards action to tackle the banking problem”.

Going forward, however, Deboeck admits the impact of sustained volatility or an increase in volatility could affect consumer and business confidence and therefore eventually, credit.

- Brian Shappell, CBA, NACM staff writer

For more information on next week’s International Credit & Risk Management Summit, including Deboeck’s keynote speech, visit www.fcibglobal.com. Additionally, check out the NACM blog and future editions of eNews for on-site coverage from the event.

Republican presidential candidate Mitt Romney has gone on the offensive to try to turn his negatively-perceived 2008 views on the auto bailout into a positive. It will take work to on his part to disengage the resulting brake that slowed his campaign efforts during the GOP primaries in states like Ohio and Michigan earlier this year.

Romney, bashed for the self-penned 2008 New York Times headline “Let Detroit Go Bankrupt,” was back on the Ohio campaign trail and proclaimed that he deserved “a lot of credit” for the rebound of the automotive industry. In his opinion piece, Romney tried to remind people that, beyond the hyper-discussed headline, he called for a “managed” and controlled U.S. automotive industry bailout, which was shepherded by incumbent President Barack Obama in 2009. The basic gist was that the president had acted on his publicly-offered advice. Romney sidestepped the fact that he opposed much of the government’s financial involvement for U.S. auto companies despite assertions from most bankruptcy experts that private investment appetite was not near strong enough during a steep downturn to have facilitated it without the bailout. They argue that liquidations would have been near-unavoidable.

Both auto industry-dependant states are key “swing states” that will go a long way in determining the 2012 Presidential Election. Romney faced a considerable image problem in both states during the primaries largely based on the ill-worded headline. The auto bankruptcy bailout almost certainly will remain a battle issue in both states through November. After all, it was the first issue Romney publicly used to engage Obama after announcing his official candidacy last year.

Brian Shappell, CBA, NACM staff writer

NACM Staff Writer Jacob Barron, CICP, was on hand in Chicago for FCIB’s annual ICE Conference this week. Full reports will be posted here on Monday. In the meantime, here are some interesting points and quotes from the proceedings:

CFTC Commissioner Bart Chilton, ICE keynote speaker, calls cyber attacks "a big threat." The notable "Flash Crash" on May 6 last year was originally thought to be a result of one.

Chilton on the hard fact about oil markets:  "If you don't have speculators, you don't have a market."

PJ Bain, CEO of PrimeRevenue, on supply chain issues (among the hottest topics of the conference): "Supply chain finance breaks the linkage between when a buyer pays and when suppliers get paid."

Janet Kim, Esq., on trade compliance difficulty: "You could spend days on any of these laws.”

Panelists on BRICs: Understanding a country's history is critical as it can greatly help exporters avoid getting burned. Doing so seems to be an increasing interest, theme that developed as I.C.E. progressed.
 

Corporate bankruptcies experienced a freefall in April, far outpacing the decline reported on the part of individuals/consumers.

Statistics prepared by Epiq Systems Inc. in accordance with the American Bankruptcy Institute found total bankruptcy filings dropped 16% from the same period last year. However, the numbers indicated commercial filings fell 25% to 5,132 for the month on an annual basis and by 9% between March and April.

“Businesses continue to cut costs to improve their financial stability,” said ABI Executive Director Samuel J. Gerdano. “As businesses remain committed to bolstering their balance sheets, bankruptcy filing rates will continue to decrease.”

However, some bankruptcy experts like Bruce Nathan Esq., of Lowenstein Sandler PC, aren’t convinced that a downward trend in bankruptcy is a situation with which creditors should become too cozy.

“Even as the economy improves, a lot of companies are going to be dealing with debt walls on debts pushed out to 2013 and 2014 by banks,” said Nathan. “I can safely predict that the trend of a decrease in filings will not last forever. Chapter 11 will increase again soon.”

Brian Shappell, CBA, NACM staff writer

Although lackluster manufacturing statistics out of China and its top trade partners isn’t necessarily reason for alarm, as noted in last week’s eNews by economists Chris Kuehl, PhD and Ken Goldstein; market watchers and credit analysts remained somewhat puzzled at often contradictory data coming from the Asian powerhouse.  
 
While the Chinese government’s official Purchasing Managers Index was listed at a 13-month high in April at 53.3, it contradicts indexes, including one conducted independently by HSBC that finds the manufacturing PMI closer to 49.3 for the same period. It is the ninth straight decline noted by HSBC of private Chinese companies, and the level falls below the proverbial Mendoza line dividing growth and contraction. Fitch Ratings pointed out this very problem, and the issues/uncertainty it creates for investors and the credit profession, this week.
 
The U.S.-based ratings agency believes the divide can be chalked up to private sector companies experiencing a significant disadvantage in the area of credit availability when compared to its public sector competitors. Fitch noted the ‘official’ [government] PMI figure reflects positive returns from large state-owned enterprises in particular, whereas the HSBC index is almost exclusively comprised of information from private sector entities.
 
“The divergence of the indicators may reflect differential terms of access to credit, with the contracting HSBC index representing the tighter credit conditions for private companies, whereas the expanding official index reflects China’s large state-owned entities, which enjoy support for growth and expansion and have easier access to funding,” Fitch said in its statement. “This is perhaps not surprising from a credit perspective when considering a centrally directed economy trying to integrate a growing capitalist business sector.”
 
While perhaps not a “surprise,” the continued uncertainty continues to be a source of frustration among investors and credit-granters.
 
Brian Shappell, CBA, NACM staff writer

After five straight months of gains, the Credit Managers’ Index (CMI) -- unveiled today at www.nacm.org -- showed an unsettling decline. Granted, the slide is far from drastic, and the CMI sits at a level exceeding that of nine of the previous 11 months.

The decline in the CMI is consistent with other data released in recent weeks. The numbers are not suggesting an imminent crisis, and nothing that approaches the return to recession being seen in Europe. However, it indicates that the robust growth that started the year has faded somewhat, provoking concerns the economy will start to retreat for the third time in as many years.

Said NACM Economist Chris Kuehl, PhD: “Spring 2012 did feature tensions in Iran sufficient to force the price of oil up for a while, and the financial crisis in Europe has had almost as much impact on the global economy as the [2011] disaster in Japan.”

Among the biggest drags on the CMI were declining sales impact on the index of favorable factors and dollar amount of customer deductions category within the unfavorable factors side.

Kuehl characterizes the present CMI as one in a "fragile situation" that is close to contraction, but he noted there are also several reasons to remain upbeat.

Brian Shappell, CBA, NACM staff writer

(NOTE: The April CMI is now available. Visit www.nacm.org to view the full breakdown. Additional coverage is also coming to this week's eNews, available Thursday afternoon).

The world’s largest hedge funds are betting that the prices for industrial commodities will start to rise, and quickly, by the end of the year. This includes iron ore, copper, aluminum and most of the rarer elements. The only thing they see tanking will be gold, as they have concluded that this is a metal that has been far overpriced as people flee other investment options.

The rationale is that there will be a significant level of global economic recovery to stimulate demand for commodities that many operations have elected to slow production of. The low prices of copper shoved some of the bigger producers into limiting capacity. The same process has been at work with aluminum. Steel demand is still far below what it was a few years ago, but it has been in recovery as there has been more life in the automotive sector as well as in mining equipment and agricultural equipment.

Analysis: In this scenario, the manufacturer faces a dilemma. If they do not lock down supply now, they face the threat of higher prices. If too many elect to buy now, the supply issues will occur that much sooner, and the prices will escalate. If the producers respond to these high prices, they will up their output and the commodities hit the market before there is real demand. Then, there is then the possibility of a glut that pushes the prices back down—just as the real demand starts up, and those who waited get the best deal.

Chris Kuehl, PhD, NACM Economist
 

"Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0% to 0.25% and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability."

Source: The Federal Reserve

New statistics unveiled by the United States’ and Chinese governments show significant declines in various manufacturing categories for the last month. But, while some in mainstream media cover the happenings with a tone of panic, economists tell NACM that such deep concern is not warranted even if the numbers look poor on the surface.

China’s Purchase Manager’s Index tracked at 49.1 for the most recent period, representing the sixth straight decline in activity out of the manufacturing powerhouse. This came at the same time the U.S. Commerce Department reported a 4.2% decrease in durable (long-term) goods orders in March, the largest slide in about three years.
Despite that, Conference Board Economist Ken Goldstein isn't all that worried about manufacturing seeing a deep downturn in mid- or late-2012 in China. He doesn’t see the manufacturing statistics as foretelling any kind of economic hard-landing there, as feared by some market-watchers.

“Industrial production globally had been slowing but appears to be turning around judging from signals from PMI’s across the globe,” Goldstein told NACM. “China is the exception, not the rule. That sets up the dynamic where their weakness pulls others down or everyone else turns a corner, allowing China to up their exports and cushion their landing. Besides, South Korea just reported an increase in consumer confidence, suggesting the Koreans are not that worried about contagion. If that is true, why should anyone else be?”

Brian Shappell, CBA, NACM staff writer

(Note: China will be front-and-center during creditor-centric discussions on the final day of the FCIB's I.C.E. Conference in Chicago, which runs May 2-4, as well as in FCIB's latest "Doing Business in China" webinar May 9-10. For more information or to register, visit www.fcibglobal.com and click the "Events" tab).

In front of eight of the Supreme Court of the United States' nine sitting justices Monday, attorneys argued the finer points of why credit bidding should or should not be enforced as a right of secured creditors during a bankruptcy-related assets sale. Though a judgment could come as late as the end of June, the justices throughout the argument hearing appeared wary of arguments that would undermine the right on the part of secured creditors to use credit bid tactics.

The case in question is RadLAX Gateway Hotel LLC v. Amalgamated Bank. At stake is whether creditors will be able to use the value of money owed by the debtor selling assets at the auction table as opposed to straight cash, a process called credit bidding, as the U.S. Bankruptcy Court for the Seventh Circuit ruled in RadLAX. However, that view is competing with contrary decisions out of the U.S. Bankruptcy Courts for the Third and Fifth Districts, which preceded it and would limit credit bidding if widely adopted.

Appearning for the petitioner (RadLAX), David Neff argued that, in a case like RadLAX, the concern lies in the ability to attract other, non-secured bidders to even “show up” for an auction if they have the knowledge that a secured creditor can best the bid without offering up any new cash, just what is already owed to them. In addition, Neff said federal law notes that the use of the word “or” in one of the clauses guiding bankruptcy actions says the sale can go on without the right of a credit bid if the “indubitable equivalent” of their claim is realized.

Neffs’ argument drew critical reactions from several of the judges, who intimated that the argument against credit bidding runs counter to the essence of the Bankruptcy Code and the intentions of the U.S. Congress:

“You’re depriving secured creditors the opportunity to hold onto an asset if he believes the asset is being undervalued,” said Justice Alito.

“If a creditor loaned you $1 million, he got a secured interest in the property – that’s the deal,” said Justice Breyer. “There is still an advantage for the debtor to stretch out the payments over time. So, give him the property.”

“The greatest security is knowing what the courts will do,” said Justice Sotomayor. “The greatest security is knowing what the courts will do. What is the value in the business world of us upsetting the norm? Why should we upset the expectations?” She added that the presence of stalking horse bidders in a vast amount of U.S. bankruptcy cases already illustrates the existing “process is working.”

“It doesn’t take a genius to figure out that, if you allow people to bid cash or credit, you’re going to get more bids and higher bids than they are only allowed to bid cash.” Said Justice Scalia.

However, those arguing against credit bidding seemed to find a strong ally in Chief Justice Roberts, who took attorney Deanne Maynard, arguing on behalf of secured creditors’ rights, to task for “avoiding” the fact that language (specifically the word “or”) in federal law could be construed that one condition could potentially be used as a substitute for the other.

Maynard argued that the condition discussed by Neff/the case petitioners was intended by Congress as an “other” condition, one that is supposed to come in the process after an auction is completed not one that supersedes other conditions guaranteeing the credit bidding right of secured creditors.

“The whole code is set up to protect secured creditors from the undervaluation of their claim,” Maynard said. “If the secured creditor can’t raise enough cash, which is a real risk, you’re taking out of the marketplace one of the most knowledgeable parties of the property.”

Roberts responded by noting the key importance of “the specific over the general” during the Supreme Court review of the issues and statutory language.

Brian Shappell, CBA, NACM staff writer

Struggles among United States-based manufacturers of solar power-related products have been well documented as at least one significant company in the industry has filed for bankruptcy protection just about every month since last fall amid stiff competition and wavering domestic consumer demand. And, now, news out of Germany looks grim as the Frankfurt-based First Solar announced it would shutter a domestic plant and “idle” four production lines in Malaysia amid the acknowledging that “the European market has deteriorated to the extent that our operations there are no longer economically sustainable.”

However, India clearly is pressing on with its alternative/renewable energy generation platform as a nation, and solar energy appears to be a big part of that. Demand for solar products developed largely in the U.S., Germany, China as well as other smaller Asian nations has skyrocketed in recent months as India struggles to tries to keep up with energy resource needs imposed upon by its surging population and development. To wit, the Jawaharlal Nehru National Solar Mission aims to expand the solar capacity within the country to 20,000 megawatts by the end of this decade, which would translate into generation of 7% of all energy used within India coming via solar means.

The latest high-profile Indian solar project, dubbed the “Rajasthan Sun Technique Energy Private Limited” has brought the Indian government and developers together with Reliance Power, a U.S. subsidiary with French ownership, as well as institutional investments from Far East Asia and Holland. Despite its reauthorization beyond this year becoming a political football in the U.S. Congress, the Export-Import Bank of the U.S. approved an $80 million loan this week to facilitate the purchase of products for the project from manufacturing outfits based in eight U.S. states and the District of Columbia. It is the seventh loan venture involving Ex-Im on an India-based solar project.

Brian Shappell, CBA, NACM staff writer

Though the trade surplus again grew this month, news late this week of a slowdown in the pace of Chinese growth sent some ripples through the markets in Asia and the rest of the world. Still, there is very little consensus on what this really means. And, is 8.3% growth really a bad thing?

The fact is that China’s leaders set a target for growth that is 7.5% to bring down inflation levels and, thus far, the economy continues to grow faster than that. However, the slowdown in Chinese growth has not been entirely due to these internal decisions, which is part of the concern.

The sense is that China does not consider the lower demand shown in February trade statistics as foreshadowing a crisis, but they are not ignoring the implications either. China soon will be getting a new set of leaders, and there will be pressure on this new team to show that they have the issues in China well in hand. The population is still expanding in China, and there is still a need to find over 1.3 million jobs a month to accommodate the new arrivals into the workforce. At the same time China is well aware that the aging population is going to put a strain on the working population over the next few years. The country can’t afford to stagnate when it comes to expansion, and that will put a damper on the inflation effort sooner or later.

NOTE: For more information on FCIB’s two-day “Doing Business in China” webinar (May 9-10), or to register, click here: http://tinyurl.com/7fpc95h. To take part in FCIB’s International Credit and Collection Survey on the topic of the BRIC (Brazil, Russia, India, China) Nations, click here: http://tinyurl.com/847jwqq.

Chris Kuehl, PhD, NACM economist
 

The rising costs of energy undoubtedly continues to put a burden on businesses around the globe. Still, exporting remains an area of optimism for several of the strongest international economies, as seems to be illustrated by statistics unveiled this week.

In Germany, a trade official said Wednesday that demand in fast-emerging Asian markets was becoming more important to business there than ever, as economic problems mount in European Union nations historically known for buying German products. As such, developing nations in the Far East warrant more attention. Nodding to the reality of the European Union’s deep financial problems, especially among its southern members, BGA President Anton Boerner declared that the EU was “losing importance” as far as export destinations go.

In China, market-watchers were surprised by this week’s news of a near $5.4 billion (USD) trade surplus on surging exports in March. Chinese officials pinned the increase to renewed appetite from U.S.-based buyers at a rate that is higher than expected at this point. China, amid growing concern over lower domestic demand, drew concern of market-watchers by reporting a $31.5 billion trade deficit just one month ago.

Meanwhile, in the United States, exports hit a record high amid demand from the Chinese and the more stable economies within the euro zone. The Obama Administration has been pushing for and easing businesses’ transition into accelerated exporting activity as the domestic economic recovery trudges slowly along. Despite the exporting record this month, it’s not all rosy for U.S. businesses in the trade game – costs of exporting and importing have increased substantial of late, especially in March (see more on this in the current edition of eNews, available late Thursday afternoon).

Brian Shappell, CBA, NACM staff writer  
 

The U.S. Bankruptcy Court located in Delaware recently got over being the venue for some high-profile bankruptcy cases. And though bankruptcy filing levels appear to be on a significant downswing, the court in the first state of the union will hear a pair of cases likely to gain their own widespread attention in the mainstream media.

“Pink slime” became a new phrase in the lexicon of America’s consciousness followed by fast-spreading stories, which gained intense notoriety through social media sharing, of the use of chemical-laden meat additive used widely by restaurants, especially fast food outfits. The public backlash caused a drastic reduction in orders and, thus, those in the meat additive industry are struggling.

As such, the first industry Chapter 11 bankruptcy filing—not expected to be the last—comes from AFA Foods, which cited media coverage and its impact on sales to explain an inability to pay debts owed to secured and unsecured creditors. Even the case’s judge, Mary Walrath, has expressed skepticism in its reorganization prospects. It has been reported that a quick company sale might be the most optimistic option.

From processed meat to another troubled industry, solar products development, yet another in a spate of filings came this week. Solar Trust of America LLC, began having liquidity problems stemming largely from issues at parent company Solar Millennium AG. The parent company, based in Germany, was trying to sell Solar Trust but could not finish the deal before filing its own bankruptcy in Europe.

The case is significant because Solar Trust owns development rights to the world’s largest solar power project, the Blyth Solar Power Project, in California. Just one year ago, it garnered a conditional loan from the U.S. Department of Energy exceeding $2 billion, almost ensuring the Republican Party will dredge up the issue as the presidential election approaches. The Obama Administration is still recovering from the hit it took when Solyndra, a company with deep ties to President Barack Obama being investigated for fraud, filed bankruptcy months ago. More than a half-dozen other solar-related companies have filed for some form of bankruptcy protection since late last summer, most of which tied to oversaturation in the U.S. market and an inability to compete on price with Asian manufacturers of solar products.

Brian Shappell, CBA, NACM staff writer
 

Despite statistics illustrating a surprise trade surplus in recent weeks (as noted in NACM eNews), the mood of the Japanese manufacturer improved only a little in the last few weeks as the Bank of Japan managed to blast the yen back to some measure of respectability. However, by all accounts, the reprieve will be short-lived, and the yen will start to ramp up again.

The dollar is not showing any signs of rebounding despite the fact the largely positive economic data of late. The euro is in the tank, and there it shall stay. The yen is still the chosen refuge of some global currency traders, and that will become manifest in the weeks ahead. The exporters know they are living on borrowed time.

The Japanese export dependence still is a drag on the economy, but it is very hard to break that pattern. Japan  simply lacks the aggressive consumer on which the United States can depend. The domestic economy will not jumpstart the Japanese, and it rarely has. The major hope in Japan still rests on the recovery of the U.S. consumer and their appetite for the goods that Japanese companies still manufacture better than the Chinese.

Chris Kuehl, PhD, NACM economist
 

Statistics to be released tomorrow outlining results of the Credit Managers’ Index (CMI) for March could give credence to an economic recovery that is well-founded and real.

It appears the story of the latest index will be one of improvements in the area of unfavorable factors. This is expected to be particularly noticeable in a pair of subcategories: accounts placed for collection and disputes. Dollar amount of customer deduction is also a category expected to track at better levels than most of the last year, as well.

Perhaps a big part of the positive momentum is that the weeding out process, so to speak, has almost run its course from a business standpoint. NACM Economist Chris Kuehl, PhD, said most of the weakest, poorest run companies have “gone by the wayside,” which has afforded opportunities for the survivors.

“The fact is that, during a boom period, there are many companies surviving and even thriving in spite of themselves,” Kuehl said. “They are not all that well run and succeed mostly because everybody is succeeding in the boom.” He added that it is now the point when the stronger competitors are able to finally reassert themselves and get the pricing they need to succeed long term.

Check back tomorrow at NACM’s website (www.nacm.org) for the full statistics and analysis of this month’s CMI.

Brian Shappell, CBA, NACM staff writer
 

Last week, Japan’s finance ministry reported the value of exports at 5.44 trillion yen, and imports coming in just short of 5.41 trillion yen. The trade surplus, which came even as exports dropped by 2.7% and imports rose 9.2% compared to the previous February, surprised market-watchers and drew claims of a resilient Japanese economy that wasn’t given enough credit as it recovers from last year’s natural disasters.

NACM Economist Chris Kuehl, who was among several who noted in March's edition of Business Credit that noted “fear” for the Japanese economic and trade outlooks going forward, admitted “unmistakable progress” has taken place there, However, there reasons for deep concern have not full faded…far from it, actually.

“The endemic issues that have plagued Japan for over two decades have hardly disappeared, and they will continue to be a drag on the economy unless there are some fundamental changes made to chronic structural flaws,” said Kuehl. The biggest threats are as follows:

• How the nation handles its energy needs, especially with an expected, perhaps unavoidable movement away from nuclear power, at least in the short-term.
• Can the export sector overcome advantages held by other regional nations’ manufacturing sectors, especially China, and the overly high, even troublesome value of the yen as investors take money out of the euro.
• One word: debt…the debt-to-GDP ratio presently is tracking at an astonishing 225%.

Brian Shappell, CBA, NACM staff writer
 

Labor contracts, especially those related to pensions and other entitlements, appear to be a common factor for a couple of U.S. cities that appear on the brink of municipal bankruptcy.

In Providence, RI this week, former state Supreme Court justice and the state-appointed receiver for the Rhode Island’s Central Falls bankruptcy from last summer, deemed a Chapter 9 for the city essentially unavoidable.  To wit, its mayor, Angel Taveres, noted the city could go broke by June without concessions on said contracts/entitlement agreements. Such an argument forced an out-of-court settlement between Central Falls, RI and its retired workers following that municipality's 2011 Chapter 9 filing.

There now is more evidence than ever that Stockton, CA is heading toward municipal bankruptcy, as well. Former U.S. Bankruptcy Court Judge Ralph Mabey has been tasked with the role of mediator in Stockton’s debt negotiations -- mediation now is required per a 2011 California law forcing parties to the table for up to 90 days prior to a Chapter 9 filing being allowed. Stockton officials have become the first to begin going through the new mandate’s mediation process. If filed, Stockton would unseat Jefferson County, AL -- a case recently allowed to continue after being deemed valid by a bankruptcy judge -- as the largest municipal bankruptcy filing in U.S. history.

Brian Shappell, CBA, NACM staff writer

The Commerce Department and Obama Administration wanted to send a message to China that it knew there was unfair assistance going to those in its solar products manufacturing sector from the government, and thus, imposed a tariff. However, most analysts and domestic solar producers lambasted the tariff as a shockingly weak inroad at punishing Chinese manufacturers with a perceived unfair advantage, at best, and a death knell into insolvency for some badly struggling U.S. producers at worst.

Commerce announced it believed the Chinese government was illegally subsidizing companies producing solar energy products there, and the companies, in turn, have been dumping its products in the United States at artificially low prices, hurting American competitors. It responded with the announcement of a tariff – a widely anticipated move that had market-watchers predicting it could be set at 20%, perhaps 30%. Instead, Commerce emerged Tuesday with an underwhelming range for the tariff: 2.9% to 4.3%. In essence, the move was not greeted as something that would help domestic producers in any significant fashion, all while further antagonizing key trade officials in China who have been engaged in a trade-based rhetoric battle with its U.S. counterparts recently. For their part, Chinese officials proclaimed such a tariff, in the end, would drastically increase prices and decrease availability of solar energy products in the world market.
 

Brian Shappell, NACM staff writer

Effective Tuesday, Washington Mutual officially has completed the Chapter 11 bankruptcy restructuring process that spanned nearly three-and-a-half litigious years.

WaMu, which will emerge as a much smaller company under the WMI Holdings moniker, confirmed that its bankruptcy plan approved in on Feb. 23 indeed has gone effective. It is now planning to begin the payment of nearly $7 billion to creditors (or, in many cases, the hedge funds that bought up assets from creditors who went bankruptcy during WaMu’s lengthy restructure).

It was the second largest corporate bankruptcy in U.S. history behind Lehman Brothers which, coincidentally, both went into bankruptcy protection mere weeks before WaMu did the same in September 2008 and emerged from the legal process weeks before it this year.
In February, Judge Mary Walrath approved the Washington Mutual (WaMu) reorganization plan in a case viewed as somewhat of a small victory for lower-level creditors. Even though most will receive pennies on the dollar as a result of the expense of a drawn-out case, it was a shock to many market-watchers that lower level creditors were able to recoup anything. It also found that the court, or at least Walrath, was not as willing to promote secured, senior creditors on the backs of others to the extent many believed would occur.

Marked by their size, drastically different plans and legal wrangling between creditors, attorneys and judges have characterized Lehman Brothers and WaMu as the two most difficult bankruptcy proceedings seen in U.S. court history. If nothing else, the cases may have illustrated the versatility and adaptability of the Chapter 11 system as the key take-away from the proceedings.

"To process the claims and have some sense of order going forward was quite an achievement," said Scott Cargill, Esq. of Counsel at Lowenstein Sandler PC in a late 2011 NACM interview about the implications of the massive reorganization cases. "In 2008, there were a lot of fears about whether our restructuring system could even handle something like this."

Brian Shappell, NACM staff writer